General Dynamics Corporation and Subsidiaries - Page 18

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          target cost plus target profit.  The ceiling price is the maximum           
          amount the Government is required to pay under a contract,                  
          regardless of the contractor's costs.  The sharing ratio is the             
          negotiated percentage by which the Government and the contractor            
          split target cost overruns or underruns.                                    
               In negotiating the profit rate to be applied to Contract               
          2034, the weighted guideline method was used.  This was a method            
          used prior to multiyear contracts, and GENDYN and the Air Force             
          recognized that the maximum weighting permitted should be used to           
          account for risks they believed would be inherent in multiyear              
          contracting, which at that time was a unique approach for Federal           
          Government contracting.                                                     
               Using the maximum weighting allowed by Department of Defense           
          regulations to arrive at the target profit, GENDYN and the Air              
          Force agreed to the following contract values:  Target cost,                
          target profit, and target price of $2,328,864,419, $315,902,006,            
          and $2,644,766,425, respectively.  The agreed ceiling price was             
          $2,863,110,458.  The sharing ratio was to be GENDYN 40 percent              
          and Air Force 60 percent, respectively.                                     
               The actual price that GENDYN would receive under Contract              
          2034 would, ultimately, be determined at the time the contract              
          was completed.  It would be based upon a comparison of GENDYN's             
          actual cost with the negotiated target cost.  If actual cost was            
          lower than the target cost, then GENDYN would receive its total             
          final cost plus the target profit plus 40 percent of the                    

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